- The Hon’ble Supreme Court (SC or Court),in Punjab National Bank v Union of India & Ors has set aside the impugned order of the Allahabad High Court (HC) in favor of the Petitioner. The Court held that the Respondent’s contention that a confiscation order could not be quashed owing to a security interest created in respect of the same property was ‘not worthy of acceptance’.
- Affirming the contention of the consortium of Banks led by the Petitioners, the Court observed that provisions of Section 35 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) will have overriding effect on the provisions of the Central Excise Act of 1944 (Excise Act).
- Section 35 of SARFAESI states that the provisions of the Act shall have affect over all other laws for the time being in force or any instrument having effect by virtue of any such law.
- In the instant case, the Commissioner, Customs and Central Excise, (Commissioner) Ghaziabad issued a demand against one M/s Rathi Ispat Ltd (RIL) and confiscated the land, building, plant and machinery of RIL for evasion of taxes. However, RIL has already mortgagedall its movable and immovable properties under credit facilities availed from various banks, in the year 2005. It created a charge on both the assets and block of the Company in the favor of the Appellant Bank.
- However, the Central Excise Commission (CEC) ordered confiscation of land, building, plant,machinery, material, conveyance, etc of RIL that were used in connection with manufacture, production, storage or disposal of goods. Simultaneously, RIL also received a notice under sections 13(2) and 13(4) of SARFAESI from the Bank.
- In furtherance of a communication between the CEC and the Appellant, the latter took symbolic possession of the properties and was informed by the Assistant Commissioner of Customs that the properties of RIL should not be dealt with without their written consent
- The contention of the Department was that in view of the fact that that all the movable and immovable properties of RIL were confiscated by the orders passed by the Commissioner, the Appellant could not have taken the possession of the property.
- Aggrieved by the communications received and the orders passed by the Department, the Appellant filed a writ petition with the Allahabad HC.
- Dismissing the petition for want of merit, the HC held that when a propertyhas been confiscated, it vests in the state and no person can claim any right, title, orinterest over it. The Court further observed that the Bank did not have any locus standi to challenge the order of confiscation in view of an impending appeal pending before it in the same matter.
- Aggrieved, the Petitioner filed the instant appeal before the SC by way of a Special Leave Petition (SLP).
- Relying on judgments in the case of Bank of Bihar vs State of Bihar, Union of India vs SICOM Ltd & Anr, Rana Girders Ltd vs Union of India & Ors, amongst others, the Appellant argued that unsecured have no priority over secured dues of the Secured Creditors/ Pawnee/ Bailee.
- After hearing both the parties, the SC noted that prior to the insertion of Section 11E (pertaining to recovery of dues) in the Excise Act, there was no provision providing for first charge on the property of the Assessee or any person. The Court also noted that even the provisions of Section 11E are subject to the provisions of SARFAESI.
- The Supreme Court, relying on earlier decisions of the Court in the case of Dena Bank v Bhikhabhai Prabhu Dass Parikh & Anr and Central Bank of India v Siriguppa Sugars & Chemicals Ltd & Ors, the SC held that having regard to the provisions contained in sections 2(zc) to (zf) read with the provisions of Section 13 of SARFAESI the secured creditor will have aFirst Charge on the Secured Assets.
- Dismissing the Respondent’s contention that the validity of the confiscation order cannot becalled into question merely on account of the Appellant being a secured creditor, the Court held that such analogy was misplaced and irrelevant.
- Allowing the appeal the Court opined that confiscation order deserved to be quashed because they themselves lack any statutory backing, as they were rooted in a provision that stood omitted on the day of the passing of the orders.
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